There are a lot of “updates” circulating around the Coronavirus Job Retention Scheme. All similarly light on detail because, put simply, there is limited detail. However, there are some things we do know, some we know to a degree, and some we can hazard an educated guess at.
Normally I’d wait for the detail before publishing anything but there are so many questions, it seems sensible to try and answer some at least. So here goes…
Q The employing business in question is not one “ordered” to “close” can it still take advantage of the Scheme?
Yes – it seems that the Scheme is open to all UK businesses. It does not specify that it has to be a business that has been told it may not continue to operate. However, the use of “businesses” seems to make it quite clear that it does not apply to private household employers (in relation to employed nannies or housekeepers for example).
Q Does the Scheme apply to all staff?
No. It is only available in relation to employees. Be careful in the use of the word as the legal definition of employee in employment law terms applies – irrespective of how you view the employee / the employee views themselves. Remember that someone can be self employed for tax purposes and yet may still be an employee for employment law purposes. If in doubt – check first.
In many businesses there may also be self employed individuals and workers (including agency workers). The present guidance does not suggest it applies to them and therefore the conclusion must be that it does not. There may be other forms of support available for these individuals in due course.
It does not appear to apply to domestic staff – nannies (see above), cleaners, housekeepers etc – save where they are employed by a business (so for example a cleaning business).
Q What does “Laid off” mean?
Government guidance also uses the wording “employees that would otherwise have been laid off during the crisis”. Whether that means “lay off” or “redundancy” in the legal sense I don’t think matters. Lay off is normally a temporary situation (let’s hope this is too) and redundancy generally regarded as a permanent one. Either way, what is clear is that it is designed only to apply to those employees that would have no work to do and are therefore (given we don’t know how long this will last) redundant (at least for now) – as a result of the crisis.
It is essentially an alternative to redundancy – and will therefore not apply to employees who agree to shortened hours or those absent as a result of self isolation or social distancing.
As an alternative to redundancy it should be open to businesses to use the Scheme to reduce headcount in order to stay viable, as in any other redundancy. However, as that potentially opens the Scheme door to significant abuse, I would expect the detail to be somewhat narrower than the headlines. We have no option but to wait and see.
Q How do I operate the Scheme?
Firstly you need to designate affected employees as ‘furloughed workers’. There is (as yet) no guidance on this (see above). In addition to being able to meet the criteria of “an employee who would otherwise have been laid off” you will need to consider the following:
· Existing employment legislation and standard principles of employment law still apply. Employees can still bring claims if these are breached – including for constructive unfair dismissal (for example should you vary their pay without consent – see below) and discrimination etc.
· Do not discriminate – In designating employees as “furloughed workers” you will need to ensure that non discriminatory criteria are used. Whilst that may be obvious in relation to criteria such as sex and race etc, you also need to be mindful of potentially indirectly discriminatory criteria – such as using criteria based on pay levels or length of service alone as such criteria may have an adverse impact on a particular group of employees – whether old or young.
· The Scheme does NOT replace employment contracts. You cannot unilaterally vary employees’ employment contracts and reduce contractual pay entitlements. If you plan to top up (from 80% to 100% pay / from the cap to normal pay), there is unlikely to be a problem, but if not then you need to consider how you will achieve the reduction. In most circumstances the designation will therefore need to be negotiated with employees / any applicable Trade Union first.
· Regard this as you would any other redundancy process. If employees agree / volunteer, great, if not, same principles, same process – and at the end of it those employees that would have been redundant are “furloughed workers”.
· If employees agree voluntarily – great. If not, can you force them to? At present there is no clear guidance so one must assume not unless usual employment law rules are followed. It is essentially an alternative to redundancy – so it is anticipated that many employees will not only agree but will be delighted. However, if they don’t agree and you need to force the position, standard redundancy consultation / collective consultation rules apply.
This means that if you are looking to change the terms and conditions of employment (pay) of more than 20 employees – essentially by dismissing and re-engaging you will need to comply with collective consultation obligations (in the best way you can). That will include filing an HR1 Form, and commencing the “Information and Consultation” process with either the recognised Trade Union or Elected Representatives of employees. For further information on this please ask.
Secondly you need to notify the employees of this designation – at the end of a (presumably shortened) consultation period if needs be.
Thirdly submit the required information to HMRC about the employees that have been furloughed and their earnings through a new online portal. This is not yet operational – HMRC will apparently be setting out further details on the information required.
Q Do employees need to agree to be designated as a “furloughed worker”
Yes probably – see above. Unless guidance is forthcoming which says otherwise, usual consultation processes should be followed as you would for any redundancy process.
Q Do I need to follow standard redundancy / collective consultation requirements?
Yes, almost certainly – see above.
Q Who pays the employees?
You do as their employer. The Scheme says that HMRC will reimburse 80% of furloughed workers wage costs up to a cap of £2,500 per month. HMRC is working to set up a system for reimbursement. In the meantime you, as the employer, need to foot the bill.
Q If the Government is paying 80% does the employer have to pay the rest?
There is no obligation on employers to make up the shortfall – BUT – you cannot unilaterally vary employees’ employment contracts and reduce pay. If you plan to top up (from 80% to 100% pay / from the cap to normal pay), there is unlikely to be a problem but if not then you need to consider how you will achieve the reduction. In most circumstances the designation will therefore need to be negotiated with employees / any applicable Trade Union first.
Q Does the Scheme relate to basic pay or overtime and bonuses?
This hasn’t been confirmed. It is not clear whether the reference to “wages” is to basic pay only or whether it includes variable components such as overtime or commission. One could speculate based on definitions in some existing legislation but there is no clarity. As I know many will ask ….my best guess at a sensible solution would be for the Government to use the same principles for what is and what is not included as when calculating holiday pay but that remains to be seen.
Q What if there is insufficient cash flow to pay employees?
You will need to consider whether you are eligible for a Coronavirus Business Interruption Loan.
Q Is there a maximum amount of reimbursement that employers can apply for?
No. There is to be no limit on the amount of funding available to an employee applying the scheme to qualifying furloughed employees.
Adele Martins
Magrath Sheldrick LLP
Employment Team
The contents of this briefing are for information purposes only. All circumstances are unique and the information and opinions expressed in this document do not constitute legal advice and should not be regarded as a substitute for legal advice. No liability is accepted for the opinions contained or for any errors or omissions.